Question

A money market account paid annual interest of 4.8% in June and 4.91% in July. A two-month, time deposit account pays 4.87% annual interest. Neither account compounds interest. Which account would have earned more interest if $15,000 were left on deposit in each account for 2 months? *

Answer 1

The time deposit account earned $0.37 more than the money market account.

This is so minimal and insignificant that it does not make a noticeable difference and the deposit could be put in any of the two accounts without the depositor suffering any disadvantage.

In practice, the time deposit earns more on the average than the money market account, because it has a stated period unlike the money market account that is always fluid.

Step-by-step explanation:

a) Data and Calculations:

Money market account:

Interest rate in June = 4.8%/12

Interest rate in July = 4.91%/12

Deposit in account = $15,000

Interest earned in June = $60 ($15,000 * 4.8%/12)

Interest earned in July = $61.38 ($15,000 * 4.91%/12)

Total interest earned in June and July = $121.38

Time deposit account:

Interest rate in June and July = 4.87% * 2/12

Deposit in account = $15,000

Interest earned in June and July = $121.75 ($15,000 * 4.87% * 2/12)